EC CONSULTATION ON THE STUDY ON TYING AND OTHER POTENTIALLY UNFAIR COMMERCIAL PRACTICES IN THE RETAIL FINANCIAL SERVICES SECTOR RESPONSE OF THE IRISH

Transcription

1 EC CONSULTATION ON THE STUDY ON TYING AND OTHER POTENTIALLY UNFAIR COMMERCIAL PRACTICES IN THE RETAIL FINANCIAL SERVICES SECTOR RESPONSE OF THE IRISH BANKING FEDERATION

2 The Irish Banking Federation (IBF) is the leading representative body for the banking and financial services sector in Ireland, representing over 70 member institutions and associates, including licensed domestic and foreign banks and institutions operating in the financial marketplace here.

3 Contents 1. FINDINGS & CONCLUSIONS COMMENTS RE FINDINGS IMPACT OF TYING AND OTHER IDENTIFIED POTENTIALLY UNFAIR PRACTICES CONSUMER COMPLAINTS POSSIBLE FOLLOW-UP LEGISLATIVE MEASURE BUNDLING USED IN PLACE OF TYING, WHERE TYING IS PROHIBITED... 11

4 1. Findings & Conclusions (1) Do you agree with the study s findings and conclusions, in particular regarding the identified potential impact of tying and other identified potentially unfair practices on the different stakeholders groups? IBF welcomes the opportunity to comment on the study s findings in relation to tying and other related practices in retail financial services. The study does recognise the benefits for industry and consumers of tying and bundling practices, but the underlying presumption that such practices are potentially unfair means that the analysis is flawed. IBF has some difficulties with the study s findings and conclusions 1, and we are concerned with the lack of explanation for why some practices are deemed unfair. Consideration should be given to the fact that consumers often opt for convenience when choosing financial products and may welcome the opportunity to select a bundled (as opposed to a tied) product. We are uncertain as to the reasons why certain activities are identified in the report as anticonsumer. For example, on pp , Amongst the other potentially unfair practices, some are unlikely to provide efficiencies to customers, and are construed as being almost per se unfair. This is the case for all practices in which the financial service provider exploits its superior information to extract more surplus from the relationship with the customer, as is the case for churning and steering. This is also the case of unsolicited offers and pressure/inertia selling, as the financial service provider can induce customers to purchase unnecessary or unwanted products, materially distorting the customer s choice. There is a clear difference between an unsolicited offer (any advertisement to a customer for a product they had not considered, which they can choose to take if they want, and may be subject to suitability or eligibility testing) and mis-selling. The report makes some statements on the existence of anti-competitive practices and anticonsumer practices in countries, without actually identifying those practices on a per country basis (or without reference to the evidence that they are basing their conclusion on), and without providing practical examples of their findings that we could seek to explore further. For example, the report states Bundling with no (dis)advantage was found to be unfair in Ireland but the basis for, and extent of, this statement is unclear. 1 At the time of this consultation, IBF highlighted the flawed nature of the questionnaire, explaining that it was not possible for IBF or its member financial service providers to complete this survey.

5 Ireland: The survey results imply that bundling practices in Ireland place consumers at a disadvantage, but this conclusion is based on only 2 responses to the survey from Ireland. We are concerned that any new legislation precipitated by the outcomes of this survey would be flawed and lack an empirical basis.

6 2. Comments re Findings (2) What other comments/suggestions would you have, including possible evidence supporting or rebutting the findings of the study? Please provide, where possible, concrete examples/quantitative information. As discussed under Heading (1) we are unclear as to the basis and extent of the statement in the survey that for Ireland: Bundling with no (dis)advantage was found to be unfair in Ireland, and we had sought to obtain further description from the consultants as to this statement. The general conclusion that the strongest concerns are created by the combination of mortgage loans with long-term accounts does not appear to be based on a case-by-case analysis of the pro-and anti-competitive effects of tying. We would mention that in Ireland, under the Consumer Credit Act, lenders are prohibited from predicating a mortgage offer on the customer opening another account with the same lender. However, we would note that in the current crisis affecting mortgage holders, some lenders report that the residential mortgage customers that also have their current account with the same institution appear less likely to experience difficulties in making their mortgage payments.

7 3. Impact of tying and other identified potentially unfair practices (3) How could it be ensured that market participants do not suffer from the negative effects of those practices? What could help consumers to avoid being locked in by these practices? IBF does not accept that bundling products should be regarded as a potentially unfair practice. In Ireland, our members offer consumer products that are subject to strict regulation under the Consumer Protection Code. Most banking products are subject to Know Your Customer and Suitability requirements (including a Reason Why letter).

8 4. Consumer Complaints (4) Are you aware of complaints from stakeholders, in particular consumers, regarding tying and other identified potentially unfair practices? Please describe. No, we are not aware of this as an issue. The Financial Regulator addressed some concerns when it introduced a prohibition on tying practices in its statutory Consumer Protection Code in See chapter 2, rule 4: A regulated entity must not make the sale of a product or service contingent on the consumer purchasing another product or service from the regulated entity.

9 5. Possible follow-up (5) Do you believe that, based on the findings of the study, the Commission needs to address the issue of tying and other identified potentially unfair practices? If yes, what are your views on the form that such a policy response should take? DG Internal Market recognises that the financial crisis has precipitated a need for a different approach to financial services and that unfortunately, integrating retail financial services in a single market is for the time being less of a priority. While mobility of customers and protection of consumers is of importance, we do not believe there is sufficient benefit to consumers that would justify the cost of preparing and introducing legislation on this matter. This survey was commissioned during a time of an expanding credit market, where cross border mobility of customers was more likely. We also note the DG Market is considering the introduction of (non-legislative) measures on mortgage credit, under its Responsible Lending and Borrowing initiative. This is likely to include measures to ensure that consumers are given clear pre-contractual information guidance and understand the products they are buying. Our members voluntarily implement to a high standard the Voluntary Code of Conduct on pre-contractual information for Home Loans (including the European Standardised Information Sheet). For non-mortgage credit, our members are preparing to implement the Consumer Credit Directive, which requires the provision of detailed pre-contractual information and explanation of the essential characteristics of the product on offer.

10 6. Legislative Measure (6) If you consider that a legislative solution on the EU level is necessary, do you believe that the issues should be dealt with by sector specific legislation or by horizontal legislation (e.g. in the context of the review of the Unfair Commercial Practices Directive? We do not consider a legislative solution is necessary.

11 7. Bundling used in place of Tying, where tying is prohibited (7) In the light of the study s finding that in Member States where tying is officially banned, bundling tends to replace it with practically the same effects, what solution would you suggest to solve the problem? IBF does not regard bundling as a problem

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